In M/s. Ivax Paper Chemicals Private Limited v. M/s. Savani Carrying Private Limited [C.M.A. No. 481 of 2024], the Andhra Pradesh High Court set aside a trial court’s order which had rejected an application under Section 8 of the Arbitration and Conciliation Act, 1996. The Division Bench comprising Justices Ravi Nath Tilhari and Challa Gunaranjan held that the institution of an earlier defamation suit in a different court could not be treated as a waiver of the right to invoke arbitration under a separate commercial dispute.
Background:
The appeal arose from an order dated 19.09.2023 passed by the II Additional Senior Civil Judge, Visakhapatnam in O.S. No. 368 of 2022. The respondent, M/s. Savani Carrying Private Limited, filed the suit for recovery of amounts related to delivery of consignments, relying on consignment notes containing an arbitration clause.
The appellant, M/s. Ivax Paper Chemicals Pvt. Ltd., filed I.A. No. 209 of 2023 under Section 8 of the Arbitration and Conciliation Act, 1996, seeking to refer the parties to arbitration. The trial court, however, dismissed the application, holding that:
- The appellant had waived its right to arbitrate by earlier filing S.No. 1777 of 2022 before the City Civil Court, Mumbai, for defamation.
- The consignment notes containing the arbitration clause were unstamped and thus unenforceable, relying on N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd., (2023) 7 SCC 1.
Appellant’s Contentions:
The appellant contended that the Mumbai suit for defamation was unrelated to the commercial dispute in O.S. No. 368 of 2022. It was submitted that:
- The application under Section 8 was filed before the written statement in the recovery suit.
- The arbitration clause was still enforceable under law as clarified in Interplay Between Arbitration Agreements… In Re, (2024) 6 SCC 1, which overruled N.N. Global Mercantile.
- The trial court’s finding that the arbitration clause had been waived due to the earlier defamation suit was erroneous.
Respondent’s Arguments:
The respondent maintained that:
- The prior filing of the defamation suit constituted a waiver of the arbitration clause.
- The consignment notes were unstamped and hence invalid for invoking arbitration.
Court’s Analysis:
1. On Waiver and Maintainability under Section 8
The Court clarified that:
“The first submission on the substance of the dispute, in Section 8… shall be on the substance of the dispute involved in that very case…”
The Bench cited Rashtriya Ispat Nigam Ltd. v. Verma Transport Co., (2006) 7 SCC 275, and Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, to affirm that “filing of the defamation suit cannot be interpreted as submission on the substance of the dispute in O.S. No. 368 of 2022.”
The application under Section 8 had been filed before the written statement in the current suit, hence was legally maintainable.
2. On Validity of Arbitration Clause in Unstamped Documents
The Court noted that the law had changed after the Constitution Bench judgment in Interplay Between Arbitration Agreements… In Re, where it was held:
“Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act. Such agreements are not rendered void or void ab initio or unenforceable.”
Thus, the trial court’s reliance on N.N. Global Mercantile was outdated and erroneous.
3. On Arbitrability of Dispute
Relying on Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, and M. Hemalatha Devi v. B. Udayasri, (2024) 4 SCC 255, the Court emphasised that:
“Usually, subject matter arbitrability cannot be decided at the stage of Section 8… unless it is a clear case of deadwood.”
In this case, there was no such manifest non-arbitrability.
Conclusion:
The High Court concluded that the trial court erred in rejecting the Section 8 application as non-maintainable. It held:
“S.No. 1777 of 2022 filed by the appellant in City Civil Court, Mumbai for damages for defamation, cannot be the first submission on the substance of the dispute in O.S. No. 368 of 2022.”
The impugned order dated 19.09.2023 was set aside and the trial court was directed to consider the application afresh on merits.
Citation: M/s. Ivax Paper Chemicals Private Limited v. M/s. Savani Carrying Private Limited, C.M.A. No. 481 of 2024
